■ Well market penetration and positioning, a resilient Chinese retail play with zero-debt and strong cash position
■ Additional 18.8% store space in 2015/16
■ Seeds planted, waiting to yield: Nanjing Nanzhan Store turnaround, recurring rental income from Haicang JV
■ Initiate with “Buy” rating and 12-month target price of S$2.10 (or a 21.1% upside)
■ Strong foothold and expanding its footprints in Fujian Province
(a) A household name in the Fujian Province, backed by its solid 18 years of experience in operating department store and supermarket.
(b) Expects an additional 18.8% store space in 2016, bringing total store network to 16 by end-2016 (considering closure of Quanzhou Quangang Store).
New stores in the pipeline: Two small stores in Quanzhou, Putian Xianyou and Quanzhou Quangang Zhongxing Store (both expecting to open in 1Q16); and Quanzhou Anxi Xincheng Store expecting to open in 2016.
■ Worth the wait
(a) The completion of upgrading works for the Xiamen train station adjacent to one of its flagship store, Xiamen Wucun Store, would see traffic flow to return or even boosting it to a higher level.
(b) Haicang JV (30% stake) likely to have significant positive implication on rental income. A commercial complex with a total gross floor area (GFA) of 113,500 sq m is expected to be ready by 2018/19. The setup of the exhibition center is to provide venues mainly for exhibition and promotion of imported goods.
(c) Poising before Nanjing Nanzhan Store’s turning point. The maiden store outside of Fujian province, is a strategic move in the unfinished Nanjing Mingfa Commercial Center. Besides establishing its presence in the middle of development area while waiting the surrounding estate to be completed, the Group has tweaked the business mix of this store to reduce operational cost. It has also introduced its pilot project of e-commerce to boost visibility.
■ Stable and supportive macro-environment – growing population, rising middle-class and affluent consumers translate to a more robust customer base. Furthermore, favourable initiatives and policies from the Chinese authorities would support the company’s growth.
■ Food scare
■ Unable to find good locations for new stores / unable to renew lease / delay in store opening / disruptive (construction) projects near the stores
■ Keen competition within the supermarket and departmental stores industry
■ Change in consumer behavior
■ Pace of Chinese economy slowdown is faster than expected
We initiate coverage for ZBR with a “Buy” rating with a TP of S$2.10 based on discounted cash flow (DCF) methodology, implying an upside of 21.1% (with dividends) from its last closing price. (Read Report)
Source : Phillip Securities Research